Woodlands Restaurant Supply Operates In Two Shifts Paying
Woodlands Restaurant Supply Operates In Two Shifts Paying A Late Shif
Woodlands Restaurant Supply operates in two shifts, paying a late-shift premium of 10% and an overtime premium of 75%. Total wages for 6000 hours are $54,000, with a normal hourly employee wage of $9. Total regular hours worked are 5,000, split evenly between the shifts. All overtime was worked by the early shift during May. Shift and overtime premiums are considered part of overhead rather than direct labor.
a. How many overtime hours were worked in May?
b. How much of the total labor cost should be charged to direct labor? To overhead?
c. What amount of overhead was for second-shift premiums? For overtime premiums?
Paper For Above instruction
The operations of Woodlands Restaurant Supply, particularly the calculation of overtime hours and the allocation of labor costs, require a detailed understanding of wage structures, shift premiums, and overhead costs. The company operates with two shifts, paying a late-shift premium, and also incurs overtime premiums, which are specifically associated with the early shift. This paper will analyze these aspects systematically to answer the questions posed.
Introduction
Understanding labor cost calculations in a manufacturing or service organization is critical for accurate financial reporting and operational efficiency. Woodlands Restaurant Supply's situation involves multiple layers of compensation, including regular wages, shift premiums, and overtime premiums, all of which impact cost accounting. The focus here is to determine overtime hours worked, appropriate cost allocation to direct labor and overhead, and breakdowns of overhead related to specific premiums.
Overtime Hours Worked in May
Given that total hours worked are 6,000 for the period, and total wages paid amount to $54,000, with a normal hourly wage of $9, the total regular hours worked can be calculated as follows:
Total regular wages = 5,000 hours x $9/hour = $45,000.
Since total wages are $54,000, the difference ($54,000 - $45,000 = $9,000) represents overtime wages. Overtime wages are paid at a premium of 75% over the regular wage, meaning overtime pays:
Overtime rate = $9 x 1.75 = $15.75 per hour.
To find the number of overtime hours:
Overtime wages / overtime rate = $9,000 / $15.75 ≈ 571.43 hours.
Thus, approximately 571.43 overtime hours were worked in May, specifically by the early shift, as specified.
Allocation of Total Labor Cost to Direct Labor and Overhead
The company considers shift premiums and overtime premiums as part of overhead. First, the total wages are split between regular wages and overtime wages:
- Regular wages: $45,000 (for 5,000 hours at $9/hour).
- Overtime wages: $9,000 (for approximately 571.43 hours at $15.75/hour).
To determine the amount assigned to direct labor, only the regular wages are directly charged, totaling $45,000. Overtime wages, included in overhead, account for the portion of total wages that reflect additional premiums beyond regular wages.
The premiums themselves are:
- Late-shift premium of 10%: applies to regular late-shift hours.
- Overtime premium of 75%: applies to overtime hours.
Since premiums are part of overhead, we allocate the applicable premiums on the overtime hours and late shift hours accordingly.
Overhead Related to Second-Shift Premiums and Overtime Premiums
The second shift receives a 10% late-shift premium, which is accounted for in overhead. Given the data, regular hours are evenly split between the shifts, so each shift incurs part of the shift premium.
- Regular hours per shift: 2,500 hours.
- Late shift hours: 2,500 hours.
The late-shift premium per hour:
Premium amount = 10% of $9 = $0.90 per hour.
Therefore, overhead for second-shift premiums:
2,500 hours x $0.90 = $2,250.
Regarding overtime premiums, all overtime hours are worked by the early shift, which incurs a 75% premium over regular wages:
Overtime premium per hour = 75% of $9 = $6.75.
Total overhead for overtime premiums:
571.43 hours x $6.75 ≈ $3,857.
Conclusion
In sum, approximately 571.43 overtime hours were worked during May, all by the early shift. The regular wages of $45,000 are directly charged as direct labor cost. The shift premium overhead for the second shift totals about $2,250, allocated based on hours worked at the premium rate. The overtime premiums, totaling approximately $3,857, are part of overhead, attributable to overtime hours worked during May. These calculations help in precise cost allocation, crucial for pricing, budgeting, and financial analysis.
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